The growing aging population in Latin America will increase pension obligations and put a strain on the sustainability of public plans within the region over the next decade, said a new report from Moody's Investors Service.
According to the report, aging populations will put pressure on defined benefit plans in Latin America as the workforce shrinks and contributions to social security decline. Plus, spending on pensions will increase as those currently in the workforce reach retirement age.
So Moody's predicts that pension deficits are likely to remain elevated over the near term.
"Pension-related spending is already adding pressure to government spending in some countries, including Argentina, Brazil, Colombia, Chile and Uruguay," said Samar Maziad, Moody's vice president, in a news release announcing the report.
"In Argentina and Brazil, fiscal pressures are severe, calling for policy action to address rising pension costs and arrest fiscal deterioration," Ms. Maziad added. "For Chile, the government's strong fiscal position and low debt will limit potential fiscal deterioration, while in Colombia and Uruguay, fiscal space is more limited."
Currently, Argentina, Brazil, Colombia and Uruguay face fiscal challenges and have a heightened level of government spending related to pensions. In addition, high debt burdens in Brazil and Argentina limit their governments' ability to contribute to their pension plans.
Pension reforms in the next decade will likely be needed to alleviate spending pressures, the report said.